Monday, September 06, 2010

The reality of property investments

Many people are paying too much for their property, either for own occupation or for rental. They are told by the property agents that the yield is better than interest on bank deposits and that prices will continue to increase further, due to economic growth.

The property agent wishes to talk up the property market, so that more people will invest in properties and they can earn their attractive commission, which can amount to a few thousand dollars.

Investors should realize the facts of property investments:

a) The gross yield on rental may look attractive, say 3% to 4%, but you have to deduct maintenance charges (for condos), repair cost, agent's commission (to rent out the property) and vacancies. The net yield is likely to be less than 2%.

b) The profit made from property is likely to be exaggerated. Many people ignore the cost of investing in property, e.g. stamp duty, lawyer's fees, agent's commission, in computing their profit.

c) Many owners heard that their neighbors were able to sell their property at an attractive price. However, when the put their property in the market, they may have to wait a long time to find a buyer. Some properties are unsold for many years, unless the owner is willing to cut the asking price drastically.

d) Owners are attractive by the high price psf for new properties in the vicinity. They forget that there is a gap of up to 20% between the price psf of old and new properties in the locality. Their property is not likely to achieve the high price psf of new properties.

Do consider these points carefully, and make your research, before you pay a high price to invest in a property.

Read:
http://tankinlian.com/admin/file.aspx?id=124

Tan Kin Lian
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4 comments:

Singapore Stock Picker said...

in this case, is not it a conflict of interest considering that most real estate agents almost never disclose these facts or hidden costs to potential buyers... they pander to the buyer's greed as well as fears that they may be losing out in terms of income or wealth preservation..

stocks, unlike property investments, come attach with the warnings that it is not entirely risk-free and that things may happen and should exercise(though how many actually read the disclaimer is another issue

September 06, 2010 8:19 AM
Unknown said...

Hi Mr Tan, Thanks for the advise. I am waiting for the HDB flats price to drop too. I will stay with my parents together with my wife for the time being. Today, there is a newspaper report on the high reject rates for the BTO projects. I think the people of Singapore is realizing that the BTO flats cost is too high for ordinary folks to buy. The flats prices has hit a turning point now. I hope my wait is fruitful.

September 06, 2010 9:55 AM
Anonymous said...

When investing in property, it is always a good idea to avoid fresh launches. Instead you should do your homework carefully and buy "old" property which is cheaper psf and where there is a good chance the plot ratio will be revised upwards. When plot ratio is revised upwards, the value of the underlying land will increase significantly and there will be a good chance of a sucessful "en-bloc". Deploying this strategy requires a lot of patience and a time frame of between 10 to 20 years. The payoff is however substantial and it is quite common for payoffs to be 200% to 300%.

September 06, 2010 10:50 AM
Spur said...

Yes, young people who are able to live with parents or in-laws should do so while waiting for prices to drop. It's even more no-brainer since prices will soften or correct in the next few months. Compared to 6 months ago when you really need to stand against the tide of indiscriminate buying. Doesn't need to be right at the bottom of the trough --- as long affordable for your income level and job safety level can already. Remember you are buying for consumption (living in) and not for investment.

My spouse and I also lived with parents for a few years back in the early to mid-1990s when HDB prices were similarly crazy. Never regretted it, unlike most of my peers who rushed to buy coz scared of missing the boat.

As for building wealth, I would still go with stocks. If you are prepared to be hardworking, disciplined, constantly reading and studying, and not worrying too much about smaller short-term losses, you can obtain 100% to 400% capital gains within 5 years or else, depending on the business cycle. For e.g. from 2003 to early 2008 I managed to exit the stock markets with over 300% gains. This is during a time when most economists now acknowledge as a cyclical bull within a longer secular bear market. So although have been retrenched, but at least seeing things thru with good dividends and continued keen interest in equities investing.

September 06, 2010 2:38 PM

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